Has Hewlett-Packard Reversed Its Trend?

With shares of Hewlett-Packard (NYSE:HPQ) trading around $24, is HPQ an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Hewlett-Packard provides products, technologies, software, solutions, and services to individual consumers, small and medium businesses, and large enterprises worldwide. The company offers commercial notebooks and desktops, consumer notebooks, desktops, and software and services for the commercial and consumer markets. The services segment provides consulting, outsourcing, and technology services to infrastructure, applications, and business process domains. The diverse technological products and services offered by Hewlett-Packard make it a leading provider that sees increased demand through global expansion.

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T = Technicals on the Stock Chart are Strong

Hewlett-Packard stock has witnesses a fair amount of selling pressure over the last few years. However, the stock is now on a strong bounce that may be helping it break the violent dowtrend. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Hewlett-Packard is trading above its rising key averages which signal neutral to bullish price action in the near-term.

HPQ

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Hewlett-Packard options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Hewlett-Packard Options

35.28%

20%

18%

What does this mean? This means that investors or traders are buying a very low amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very low amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Hewlett-Packard’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Hewlett-Packard look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-11.22%

-13.70%

-3060%

-582%

Revenue Growth (Y-O-Y)

-10.14%

-5.58%

-6.73%

-4.87%

Earnings Reaction

-5.39%

3.91%

4.38%

4.26%

Hewlett-Packard has seen decreasing earnings and revenue figures over the last four quarters. From these figures, the markets have been generally happy with Hewlett-Packard’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Hewlett-Packard stock done relative to its peers, Accenture (NYSE:ACN), Dell (NASDAQ:DELL), International Business Machines (NYSE:IBM), and sector?

Hewlett-Packard

Accenture

Dell

IBM

Sector

Year-to-Date Return

72.70%

21.97%

32.99%

7.54%

20.89%

Hewlett-Packard has been a relative performance leader, year-to-date.

Conclusion

Hewlett-Packard provides a variety of technology products and services to consumers and companies operating in a wide range of industries around the world. The stock has witnessed a strong bid this year that may be changing the mood and trend of the stock. Over the last four quarters, earnings and revenue figures have been decreasing which have kept investors happy. Relative to its peers and sector, Hewlett-Packard has been a year-to-date performance leader. Look for Hewlett-Packard to OUTPERFORM.

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